The leaked document from the negotiations over the Trans Pacific Partnership, reported in the Herald last week, shows that the fears expressed in many quarters as to the outcome of those negotiations are more than justified.

We are constantly assured that the great advantages of extending free trade, particularly with the Americans, will more than offset any minor changes we might have to make as the price of such an agreement. The record of the negotiations shows, however, that – exactly as was to be expected – the Americans see the supposed advantages of free trade entirely in terms of advancing the interests of major American corporations.

The inevitable result? Since cooperative arrangements for handling both exports and imports are regarded by “free trade” zealots as an infringement of the “free” market, what is peddled as a simple free trade deal could require major concessions in the way we organise our exports – through Fonterra or Zespri – and in the freedom we have to negotiate, by using our collective purchasing power through agencies like Pharmac, the best possible prices for imports like pharmaceuticals.

The leaked document, focusing as it does on intellectual property issues like patents and copyright, pays little attention, however, to one of the main threats from the TPPA – the requirement that overseas corporations should be able to sue a future New Zealand government in a specially constituted tribunal if their trading opportunities were to be reduced by future legislation.

Foreign businesses would, as a consequence, have much greater legal rights than any New Zealand enterprise would enjoy, and those legal rights could not be altered, even by a future government elected with a mandate to do so.

These fears are in no sense fanciful. Other countries which have agreed to such obligations in the past are now regretting having done so. South Africa, for example, which accepted such arrangements in trade deals with the Americans in earlier years is now insisting that the deal should be re-negotiated in the light of their damaging experience of what they mean in practice.

Ecuador and Venezuela have already refused to extend trade agreements with the US containing such provisions and India has rejected an investment agreement with the US only if the dispute-resolution mechanism is changed.

Countries like these understand that granting permanent rights of this kind to American corporations would mean, for example, giving up the ability to protect the environment from the activities of mining and petroleum companies, or (as the Australian government has discovered) being sued as a result of trying to restrain tobacco companies from selling a product that is known to cause death and disease.

Our government would have to accept many other restrictions, as the Argentine government discovered when it imposed a freeze on energy and water prices, in an attempt to help hard-pressed consumers, and had to pay over a billion dollars in compensation to international utility companies.

Even the judges who sit on these specially constituted tribunals are amazed at the power they exercise; as one has commented, these provisions mean that “three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.”

Concerns like these have now extended to Europe and to the UK in particular. The Americans are negotiating a Transatlantic Trade and Investment Partnership with European countries which will contain the same investor-state dispute settlement provisions as are intended for the TPPA. It seems likely that those countries will provide stiffer resistance to these provisions than our own government will offer in the TPPA negotiations.

What justifies such pessimism about our government, you may ask? The first warning sign is that the negotiations are being conducted in secret and that, by the time the deal is done and announced, it will be too late. The government’s willingness to defy public opinion over asset sales is convincing evidence of the scant regard it pays to what our citizens want when it is a question of pleasing business interests.

Even more worryingly, the government has demonstrated in the deal it has made with Sky City over an Auckland convention centre that it suffers no twinge of conscience over signing up to a legally binding arrangement that is intended to prevent future governments from altering the deal. The granting of the licence for an increased number of pokies is meant to run for 35 years, whatever a new government – or the voters – might think.

The risk is clear – the TPPA, while presented as a free-trade arrangement, is really a very different beast. Free trade, in principle, is undoubtedly to be welcomed, but in the normal sense is meant to remove restrictions in order to benefit the consumer and ordinary citizen through lower prices and increased opportunities.

The TPPA is intended to do the reverse – to ensure that the dominant market positions of powerful overseas corporations are immune from challenge, so that prices stay high and the interests of the ordinary citizen, and the principles of democracy, are sidelined. You have been warned!

Ask yourself a simple question. If John Key had come to power before our non-nuclear policy had been decided, would he have initiated it on his own account? Or would keeping in with the Americans have been his first priority?
The question is worth asking because New Zealand Prime Ministers are constantly faced with striking the right balance between protecting our own interests on the one hand and pleasing powerful external forces on the other.
The answer to the question is surely obvious. The Key government has shown itself repeatedly to be keen to meet the demands – whether commercial or political – of outside interests. Whether it be reducing the rights of New Zealand workers at the behest of Warner Bros – described by the New York Times as John Key being “bent to the will” of the film studios – or denying the right to protest on the occasion of a visit from the Chinese Vice-President, or following the US lead in abandoning the Kyoto Protocol, we can have little confidence that our government will stand up for us when they come under pressure.
The issue arises again in the context of the negotiations over the Trans Pacific Partnership. Once again, we need to know whether we can rely on our government to resist the pressure to sell us short.
Typically enough, the attempt is being made to define the debate about the TPPA in the black and white terms of being either for or against free trade. If only it were that simple. Most people, me included, would see – all other things being equal – considerable advantages in an extension of free trade. But we might also observe that many countries – especially smaller and weaker ones – have prudently avoided opening up their economies to powerful competitors until they are confident they can handle the challenge.
It is sensible to ask, therefore, whether we are strong enough to face direct competition in our own backyard from the world’s most powerful economies; and, if there is doubt about that, should we not realise that what is presented as a free trade agreement might really just be a recipe for absorption into those selfsame economies?
The TPPA also raises a number of specific issues. It is agreed by experts in international trade law – even by those who are in favour of the TPPA – that New Zealand will need to pay particular attention to at least three of those issues which, unless satisfactorily resolved, could adversely affect our interests.
First, the powerful US pharmaceutical industry has attacked Pharmac – the state agency for drug purchase that has saved us billions of dollars – as a barrier to the kind of profits they want to see. The danger here is that, even if Pharmac is not targeted for actual abolition, its powers may be scaled down to make it less effective. On the same principle, other public and cooperative mechanisms, such as Fonterra and Zespri, could be challenged as unacceptable to the concept of “free”trade. And, ironically, the kind of tax sweetener we provided to Warner Bros could also be struck down as a distortion of trade.
Second, it is recognised that attempts to restrain the buying up of our assets by foreign interests would be opposed as contrary to the “free trade” encapsulated in a TPPA. Nor would discriminating in favour of local New Zealand suppliers in preference to overseas companies be tolerated. When it comes under pressure on this issue, our government will be reduced to asking for special exemptions – something sure to be strenuously resisted by the Americans and others.
A third area which warrants concern is the “investor protection” provision – typically found in this kind of “free trade” agreement – that allows overseas corporations to sue our government in special tribunals, even though they are not parties to the TPPA and even though a later government might have been elected to put in place a totally different policy on a given issue. Again, the unduly optimistic language in the face of this threat is that of the need for “mitigation”.
The Herald’s advice – that we need not worry about these issues because we could always break the treaty if it turned out badly – is not guidance that should be offered to or accepted by a responsible government.
No one disputes that the Americans will push these issues hard and will expect to win. Whether we can defend our interests will depend entirely on how strongly our government fights our corner, and whether it is prepared to say no.
Hence the question with which I started. Do you have confidence that John Key will stand up to the pressure? I fear that the best we can hope for is a fudged outcome that will in reality be a capitulation on each of these issues. Our confidence cannot be helped by the fact that the negotiations are being conducted in secret and that, by the time we know the outcomes, it will be a done deal that cannot be changed.
And all of this gambled on the hope that the powerful US dairy industry will welcome the tariff-free entry of our dairy products into the US!
Bryan Gould
9 December 2012

In the final weeks of the election campaign, the question of whether or not to sell some of our key assets remains, for many voters, a defining issue. Yet, while that question is hotly debated, a related issue of equal if not greater importance is sliding by under the radar.

That asset sales should raise real concerns is hardly surprising in a country that has already sold a higher proportion of its economy into overseas ownership than any other developed country. For many, it raises fears, not just about the loss of control over our economic future, but about our powers of democratic self-government as well.

Yet, while those issues rise to the top of the election agenda, Bill English will – this weekend in Hawaii – give consent in our name to the broad principles of a new multilateral agreement which will pose an even greater threat to our continued existence as a genuinely self-governing democracy.

He will do so without ever consulting us. Not only that – we will not be allowed to know what is in the agreement, and even the record of the negotiations themselves will be kept secret, it seems, for up to four years.

Parliament will not be allowed a say until the deal is done. There will be no scrutiny by a select committee. The government – in the persons of the Prime Minister, the Minister of Finance, and the Trade Minister – will make these secret decisions for us.

Yet we already know that the Trans Pacific Partnership Agreement is certain to raise issues of the greatest importance. We already know that the government is so convinced that “free trade” is a good thing that it will be prepared to sign away almost anything for the chance to sell to our trading partners the products that – in a food-hungry world – they want to buy anyway.

We know that our government will roll over at the mere sight of a dollar bill. Who can forget the unseemly haste with which we gave away huge tax advantages and changed our labour laws at the behest of Warner Brothers? Hardly the action of a government or a country with any self-respect.

Little wonder that there is a real concern that the American pharmaceutical industry will insist that the role of Pharmac – the government agency that has used its buying power to keep down the price of prescription medicines and has accordingly saved New Zealanders hundreds of millions of dollars – will have to be reduced so that the drug companies can extract much greater profits from us.

On this, as on other similar issues, Ministers give us general assurances – and by the time we discover what those mean, it will be too late.

It is now clear, however, there is an even more insidious and threatening danger at the heart of this secret agreement. One clause that the Americans will insist on (as they have done with other similar agreements) is a provision that would allow foreign private corporations to sue our government (including all future governments) if they saw any sign that the terms of the secret agreement might not be adhered to.

The legal action would be brought, not in our own courts, or even in a properly recognised international court, but in special tribunals set up specifically for the purpose. It would be necessary to establish these courts especially because they would be dealing with very unusual cases – cases where privately owned companies could sue a sovereign country to enforce treaty provisions to which those companies were not even parties.

Let us be in no doubt what that would mean. It would mean that an American corporation would have far more extensive rights against our government than any New Zealand company would ever have. It would mean that a future government, perhaps elected to change policy in an area like environmental protection or health and safety, could be prevented from doing so by a foreign corporation suing that government in a special tribunal.

It would mean, in other words, that concessions made in secret by today’s government could never be claimed back. We, as a country, would be locked into a marketplace controlled by foreign corporations.

This is not mere speculation. American and European companies investing and trading overseas have regularly enforced these rights arising from similar treaty provisions.

Ironically, the history of this kind of provision has begun to attract attention because it has come back to bite those who created it. The Germans, some decades ago, began to insert such provisions in treaties with third-world countries, so that the interests of German investors in those countries could be protected. Such was the power of German investment, and the weakness of the recipient countries, that no one took much notice.

Now, however, with the crisis in the eurozone and the growing investment of formerly third-world countries in Europe, the boot is on the other foot – and European countries are suddenly crying foul at the prospect of being sued by private companies from China or Korea.

Before New Zealand gets embroiled in similar proceedings, could we at least get a clear answer to a simple question? Does the TPPA, to which Bill English nodded assent this weekend, contain a similar provision?

What’s not to like about free trade? Trade is obviously a good thing, and free trade must surely be better than the alternative? So convinced are New Zealanders of its merits that the “free trade” label need only be attached to this week’s talks about a Trans Pacific Partnership to persuade us that a successful conclusion would be an unalloyed blessing. Yet the actual basis for this touching faith has almost never been debated.
Ever since British membership of what was then the Common Market ended well over a century of managed trade, and Rogernomic fervour persuaded us that the “free” market would always produce the best results, it has been an article of faith in this country that free trade is the only way to go. Yet other developing countries (and who is to say we are not one?) have almost always seen the advantages of protecting nascent and vulnerable industries against the full force of competition from more powerful economies.
We, however, have approached the global marketplace as a child would a candy store. With astonishing naivety, we have optimistically and often unilaterally removed tariff and other trade barriers, confident that our trading partners would also one day see the light, and that our tiny and vulnerable economy could in any case prosper in direct competition with some of the largest and most efficient economies in the world.
Each new step towards free trade nirvana is celebrated and justified by pointing to the increased exports that increased free trade will bring. No matter that our trading partners only buy our goods because they want them – and in a world short of food that is likely to become even truer, as witness the proprietorial interest the Chinese are showing in our dairy industry.
No matter that the claimed increase in exports seems to owe little to the presence or absence of a free trade agreement. The sharp rise in our exports to China, for example, had already happened before our free trade agreement had time to take effect this year.And no matter that, in virtually every case, the increase in exports has been more than offset by a sharp increase in imports, with consequent damage and in some cases actual destruction of domestic industries. We are so dazzled by the prospects of export growth that we are ready to take any risk and make any concession.
If free trade were really as beneficial as is claimed, why have we endured our perennial trade imbalance over such a long period? And do we understand that free trade arrangements are not just about trade, but are really designed to produce an integration of economies?
A free trade arrangement operates very much like a single economy. If the whole of the combined market can be accessed without any restriction from any point within it, why would anyone manufacture anywhere else but the most populous part of the market and the most efficient or low-cost manufacturing centre?
That invariably produces a concentration of skills, resources and capital in the most efficient parts of the single market, and that does not usually include small marginal economies like New Zealand – just ask the Greeks or Irish or Portuguese.
And it is not just tariffs that have to be aligned. Anything that could be argued to upset the “level playing field” will not be allowed. As others have discovered before us, a free trade agreement with the United States, for example, would mean that our cooperative marketing of dairy products or kiwifruit through a “single desk” like Fonterra or Zespri would be targeted as an unacceptable distortion of trade.
A monopsonistic purchaser like Pharmac, which has saved us millions of dollars, would be attacked as inimical to the “free” market that the major pharmaceutical companies would want to exploit. And across the board, any attempt to give priority to local suppliers would be outlawed.
If the Trans Pacific Partnership follows, as American “free traders” have assured us it will, the model provided by the North American Free Trade Agreement, there are yet more far-reaching consequences in store. A NAFTA-style arrangement would give individual companies the power to enforce rights against our government in specially constituted international tribunals, even if those rights were not available to our own firms.
This is an international agreement of an unusual type – one where individual corporations have the same rights as governments. Those rights could include exemptions from domestic obligations in fields like health and safety, or concessions on tax treatment, or preferential treatment when it comes to awarding contracts, or relief from attempts to protect the local ownership of assets. Even if our own government – perhaps a government of the future – wished to change domestic law in these respects, foreign corporations could still enforce their rights under the “free trade” agreement.
There is no reason why a sensible trading relationship should not benefit both parties. There are many situations where free trade is appropriate. But we would be foolish to go on, as we have done for 25 years, taking on trust that the “free trade “ label is the only safeguard we need.
Bryan Gould
5 December 2010
This article was published in the NZ Herald on 7 December.